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The US versus Australia

7 Jun 2022 19 day(s) ago

The Australian stock market is no longer as heavily affected by the US stock market.

It is used to be a cliche that the US stock market sneezed and the Australian market caught a cold. Not any more. The massive pool of super money is one factor, and the more modest valuations are another. Add in the higher level of dividends and the two markets are diverging.

Still, there is little doubt that there is growing bearish sentiment in the world’s stock markets. This is the so called fear and greed index in the US, which suggests there is considerable pessimism.

The markets have rallied a little and the S&P 200 is actually about break even over the last six months. But the expectations internationally are not good.

Michael Wilson of Morgan Stanley in the US is reportedly saying that the market has a long way to go down:

“The bottom line: Wilson warns that the bear market rally that began a few weeks ago can continue for a few more weeks until the Fed makes it crystal clear they remain hawkish, and earnings revisions fall well into negative territory—a dynamic that seasonals should support.

“It is this combination that drains optimism from the bulls week after week, that should ultimately take the S&P 500 toward 3400 by mid/late August, according to Morgan Stanley.”

Macquarie says the market’s PER (price earnings ratio, or earnings multiple) for June 2022 increased to 14.9 times and the PER for December 2022 increased to 14.1 times. This is actually quite modest. For longer term investors, it is certainly no reason to be sounding the alarm bells.?

Another indication is that investors overseas are moving towards value stocks, companies with strong underlying earnings that are safer.

That is less of an issue in Australia, where most of the big companies are value stocks with strong and established earnings rather than growth stocks with considerable unproven upside. To play in the Australian market largely means to be a value investor.

 

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